How We Can Improve School Funding

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When it comes to school finance, far too many states and districts are lacking innovation, flexibility, and new ideas. Instead, many state and education leaders continue to support and employ methods that prevent schools and principals from undertaking the efforts that they think are most needed to improve education in their classrooms. The use of state categorical grants—funds to school districts with strict limits on their use—exemplifies this lack of innovation in school finance.

States generally allocate dollars to school districts based on funding formulas as determined by state law. Formula funding takes two forms: foundation grants or base grants, which cover the basic cost of education, such as salaries and textbooks; and categorical grants—money that must be used specifically for the purpose designated by the legislature or state education agency.

Because of their designated-use requirement, categorical grants can discourage school leaders from using their dollars in ways that might best address their students’ needs. School-funding policies should ideally empower local school leaders to target resources toward services, programs, and supports that they believe will be most effective. To do this, schools need to receive as much or all of their funding through a weighted student formula grant.

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